House bill would cut fees for Pandora, other Internet radio services

House lawmakers on Friday introduced a bill aimed at lowering the fees paid by Pandora Media and other Internet radio streaming services.

The bill proposes to change the way the U.S. Copyright Royalty Board calculates how much money Internet radio services must pay music labels and artists.

Pandora has actively lobbied Congress to make the change, arguing that the current method is unfair because it charges Internet radio services disproportionately more than similar services provided by cable operators and satellite radio. Titled the Internet Radio Fairness Act, the bill would make it so that the royalty board must apply the same calculations to Internet radio as it does for satellite and cable radio.

The Oakland-based company lauded the bill, saying in a statement that the legislation would "establish a level playing field for Internet radio by putting it under the same rate standard of the Copyright Act as cable and satellite radio."

But artists and labels objected to changing the royalty structure, saying it will hurt musicians.

“There’s nothing fair about pampering Pandora, with its $1.8-billion market cap, at the expense of music creators,” said Ted Kalo, executive director of the MusicFIRST Coalition, a group that represents musicians.

The bill, sponsored by Reps. Jason Chaffetz (R-Utah) and Jared Polis (D-Colo.), has the potential to become a replay of the epic -- and successful -- battle Pandora waged between 2007 and 2009 to lower the royalties it had to pay. It succeeded, and in 2009 all parties agreed to a rate formula that required Internet radio providers to pay either a per-song rate that averages about 2 cents per listener per hour of music streamed, or 25% of their gross revenue -- whichever is greater.

For Pandora, the 2 pennies is adding up to hundreds of millions of dollars a year. In the second quarter alone, Pandora paid $60.5 million in royalties, or roughly 50% of the company's revenue. The rate for satellite radio is set at 8% of gross revenue, while cable music service providers pay 15% of gross revenue.

"If Pandora was not burdened with these punitive royalties, the company could introduce music services that could grow the industry and grow royalties," said John Villasenor, a senior fellow at the Brookings Institution and a professor of electrical engineering at UCLA. "This will mean more music choices for consumers, a thriving Internet radio industry and more royalties for musicians."

Sen. Ron Wyden (D-Ore.) is expected to introduce a similar bill in the Senate.